Originally Posted by DblDoc
RC you would be surprised how much your new contributions will be able to rebalance your portfolio. I have seen no convincing evidence that rebalancing adds significantly to your returns, it is a risk management tool. If you are comfortable with a slight increase in your risk level when one asset is slightly out of balance it is fine to leave it there until you catch up with new contributions. As LOL stated you will be able to TLH and offset gains if you have to. In addition you will likely have equities in your tax deferred space given you are starting at 80:20. Rebalancing within those accounts is tax free.
I know it sounds complicated but once you start doing it it is rather easy.
One other consideration to increase your tax deferred space is to find a locums job as an independant contractor. This will allow you to set up another tax deferred IRA such as a SEP IRA and save up to ~20% of your income from that job.
I agree with DD you can use your future contributions can be used as pain free way of rebalancing and move toward a lower equity allocation.
Let's say that in next 10 years the returns of stocks and bonds reverse and you have $1 million in stocks and $200K in bonds. If you make future contributions in the neighborhood of 80-100% bonds in 5 years your AA should be in the 65-70% range. If even after large fixed income contributions your stock allocation is still too high. Then Mr. Market is sending you a signal if stocks outperform bonds for 15 years by a significant margin it is time to move money from stocks into bonds.
Now a bit of warning. The hardest thing for most people to do is shift money from hot asset classes (be it stocks, real estate, gold,) to under-performing asset classes. Academic studies on re-balancing often forget the psychological factors of investing which is why they show that re-balancing every 2 or 3 years is as good as annual re-balancing . If you think that is going to be hard for you then do annual re-balancing and don't pay to much attention to the tax consequences. On a couple of doctors salaries you'll pay a boatload of taxes what is another few thousands.
Oh as a retiree thank you for your contribution